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Minimum Support Price

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

Historical perspective of MSP

The Price Support Policy of the Government is directed at providing insurance to agricultural producers against any sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. Till the mid 1970s, Government announced two types of administered prices :

  • Minimum Support Prices (MSP)
  • Procurement Prices

The MSPs served as the floor prices and were fixed by the Government in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop. Procurement prices were the prices of kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS. It was announced soon after harvest began. Normally procurement price was lower than the open market price and higher than the MSP. This policy of two official prices being announced continued with some variation upto 1973-74, in the case of paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one year only. Since there were too many demands for stepping up the MSP, in 1975-76, the present system was evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat being procured for buffer stock operations.

Determination of MSP

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-

  • Cost of production
  • Changes in input prices
  • Input-output price parity
  • Trends in market prices
  • Demand and supply
  • Inter-crop price parity
  • Effect on industrial cost structure
  • Effect on cost of living
  • Effect on general price level
  • International price situation
  • Parity between prices paid and prices received by the farmers.
  • Effect on issue prices and implications for subsidy

The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following :-

  • Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
  • Cost of production per quintal in various regions of the country and changes therein;
  • Prices of various inputs and changes therein;
  • Market prices of products and changes therein;
  • Prices of commodities sold by the farmers and of those purchased by them and changes therein;
  • Supply related information - area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
  • Demand related information - total and per capita consumption, trends and capacity of the processing industry;
  • Prices in the international market and changes therein, demand and supply situation in the world market;
  • Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
  • Cost of processing of agricultural products and changes therein;
  • Cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
  • Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.

The increase in MSP for Kharif Crops is in line with the Union Budget 2018-19 announcement of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the farmers.

Source : Farmer Portal

Pricing policy for sugarcane

The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955. Prior to 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane and farmers were entitled to share profits of a sugar mill on 50:50 basis. As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October, 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane. A new clause ‘reasonable margins for growers of sugarcane on account of risk and profits’ was inserted as an additional factor for working out FRP and this was made effective from the 2009-10 sugar season. Accordingly, the CACP is required to pay due regard to the statutory factors listed in the Control Order, which are

  • the cost of production of sugarcane;
  • the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
  • the availability of sugar to the consumers at a fair price;
  • the price of sugar;
  • the recovery rate of sugar from sugarcane;
  • the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value (inserted in December, 2008) and;
  • reasonable margins for growers of sugarcane on account of risk and profits (inserted in October, 2009).
States also announce a price called the State Advisory Price (SAP), which is usually higher than the SMP.

Crops covered

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively. The list of crops are as follows.

  • Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
  • Pulses (5) - gram, arhar/tur, moong, urad and lentil
  • Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
  • Raw cotton
  • Raw jute
  • Copra
  • De-husked coconut
  • Sugarcane (Fair and remunerative price)
  • Virginia flu cured (VFC) tobacco

Minimum Support Price for 2020-21

Sowing season in India of crops varies from state to state and the harvesting of the crop also depends on variety. Thus a harvested crop sown in kharif may reach in the market even before October. MSP of Kharif Crops for 2020-21 is applicable from 1 September 2020.

Commodity

Variety

MSP for 2019-20 (Rs per quintal)

MSP for 2020-2021 (Rs per quintal)

Increase over previous year (Rs per quintal)

KHARIF CROPS

Paddy

Common

1815

1868

53

 

Grade 'A'

1835

1888

53

Jowar

Hybrid

25502620

70

 

Maldandi

2570

2640

70

Bajra

 

2000

2150150

Maize

 

1760

185090

Ragi

 

3150

3295

145

Arhar (Tur)

 

5800

6000200

Moong

 

7050

7196

146

Urad

 

5700

6000

300

Cotton

Medium Staple*

52555515260

 

Long Staple **

5550

5825

275

Groundnut in shell

 

5090

5275

185

Sunflower seed

 

56505885235

Soyabeen

Yellow37103880170

Sesamum

-

64856855370

Nigerseed

-

54906695755

RABI CROPS (2019-20 season to be marketed in 2020-21)

Wheat

 

18401925

85

Barley

 

1440

1525

85

Gram

 

4620

4875

255

Masur (Lentil)

 

4475

4800

325

Rapeseed & Mustard

 

4200

4425225

Safflower

 

4945

5215270

Toria

 

3560

3900

340

OTHER CROPS

Copra (2020 crop season)

Milling

 9521

9960

439

 

Ball

 9920

10300

380

De-husked coconut

 

2571

2700

129

Raw Jute (for 2019-20 season)

 

 

3950

-

Sugarcane $

 

 

275

-

* Staple length (mm) of 24.5 -25.5 and Micronaire value of 4.3 -5.1

** Staple length (mm) of 29.5 -30.5 and Micronaire value of 3.5 -4.3

$ Fair and remunerative price

The Fair and Remunerative Price payable by sugar mills for 2019-20 sugar season has been fixed at Rs.275 per quintal for a basic recovery rate of 10%; providing a premium of Rs. 2.75/qtl for each 0.1 % increase in recovery over and above 10%. The cost of production of sugarcane for the sugar season is Rs. 155 per quintal.

The FRP so approved shall be applicable for purchase of sugarcane from the farmers in the sugar season 2019-20 (starting w.e.f. 1st October, 2019) by the sugar mills.

Related resources

Sources : Farmer Portal, Union Budget Portal, Arthapedia



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